Bingham Greenebaum Doll LLP recently received an opinion from the Kentucky Court of Appeals which confirmed the judgment of the Fayette County Circuit Court in a dispute over who were the proper beneficiaries of a deceased man’s Individual Retirement Account.

In 1985 the deceased man designated his wife as the recipient of both his estate and his Vanguard Individual Retirement Account if he were to proceed her in death with her children, his stepchildren, as the secondary beneficiaries. His wife passed away in 2008, and he made his stepchildren probate heirs to all of his estate. In April 2011 the man updated his Vanguard IRA beneficiary from his wife to “my descendants who survive me, per stirpes.” The man had no children of his own so the secondary beneficiaries, his stepchildren, remained the beneficiaries of the IRA.

The man removed his stepchildren as the beneficiaries of his probate estate and instead willed it to an unrelated friend. He never formally changed the beneficiary of the IRA. Vanguard gave him an opportunity over the phone and sent a form over the mail once a year that would allow him to change the beneficiary. At some point after the man’s final will in June 2012 he told his friend, who had been named the executor of the man’s will, that he would receive “everything” however the April 2011 IRA designation was still in place. Upon the man’s death a contentious legal battle ensued.

The primary question of the court proceedings was: “Was the change in the deceased gentleman’s will legally enough to change the beneficiaries of the Vanguard IRA?” Ultimately, both the Fayette County Circuit Court and the Kentucky Court of Appeal’s ruled in favor of our clients, the stepchildren. It was explicitly clear that the deceased man had ample opportunity to formally change the beneficiaries of the IRA and he had not done so. The substantial compliance doctrine is commonly applied to questions concerning the identity of a beneficiary of a life insurance policy, and the courts extended the concept to the beneficiary of an IRA as well. The compliance in this case was insufficient and thus the doctrine was not met. The issue is now pending discretionary review before the Kentucky Supreme Court.